Underlying the latest U.S.-Israel spat over settlements is the deeper — real — problem: There are five key actors in the Israeli-Palestinian equation today. Two of them — the Palestinian Prime Minister Salam Fayyad and the alliance of Iran, Hamas and Hezbollah — have clear strategies. These two are actually opposed, but one of them will shape Israeli-Palestinian relations in the coming years; indeed, their showdown is nearing. I hope Fayyad wins. It would be good for Israel, America and the moderate Arabs. But those three need their own strategy to make it happen.

Fayyad is the most interesting new force on the Arab political stage. A former World Bank economist, he is pursuing the exact opposite strategy from Yasir Arafat. Arafat espoused a blend of violence and politics; his plan was to first gain international recognition for a Palestinian state and then build its institutions. Fayyad calls for the opposite — for a nonviolent struggle, for building noncorrupt transparent institutions and effective police and paramilitary units, which even the Israeli Army says are doing a good job; and then, once they are all up and running, declare a Palestinian state in the West Bank by 2011.

The strategy of Fayyad — and his boss, President Mahmoud Abbas — is gaining momentum and is in “direct conflict with the network of resistance: Iran, Hezbollah and Hamas,” said Gidi Grinstein, the president of the Reut Institute, one of the premier Israeli policy research centers.

Iran’s strategy, explains Grinstein, is simple: Destroy Israel through a combination of asymmetric warfare — like Hezbollah’s war from South Lebanon and Hamas’s from Gaza; delegitimize Israel by accusing it of war crimes when it combats Hamas and Hezbollah, who fight while nested among civilians; “religiousize” the conflict by making it Muslims versus Jews, focusing on symbols like Jerusalem; and, finally, suck Israel into “imperial overstretch,” e.g., keep Israel occupying the 2.5 million Palestinians in the West Bank, which Iran & Co. believe will lead to “Israel’s implosion.”

Therefore, today, Fayyadism, which aims to replace the Israeli occupation of the West Bank with an independent Palestinian state, is the biggest threat to Iran’s strategy. So the smart thing right now would be for the other three parties to have a clear strategy to back Fayyadism. If only. ...

Ever since Israel occupied the West Bank and its Palestinian population in 1967, Israelis have faced a dilemma: Do they want a Jewish state, a democratic state and state in all of the land of Israel (Israel plus the West Bank)? In this world, they can have only two out of three. Israel can be Jewish and democratic, but not if it keeps the West Bank, because the Palestinians there plus all the Israeli Arabs will eventually outnumber the Jews. It can be Jewish and keep the West Bank, but then it can’t be democratic; Arabs will be the majority. It can be democratic and keep the West Bank, but then it can’t be Jewish.

I am certain that Prime Minister Bibi Netanyahu understands this, which is why he has accepted the principle of a two-state solution. But his government is an impossible mix of moderate Labor Party and hard-line religious and nationalist ideologues who actually believe Israel doesn’t have to choose two out of three but can have all three if it just hangs tough.

As a result, Bibi’s government can’t ignore the U.S. and Fayyad, but neither can it move decisively to help. The columnist Nahum Barnea of the Israeli daily Yediot Ahronot compared Netanyahu “to one of those elderly drivers who straddle two lanes for fear of making a mistake, making the drivers trailing after them crazy and cause accidents. When he signals left, he turns right. When he signals right, he continues straight ahead.”

Most of the pro-U.S. Arab states lack both vision and courage, so that leaves the Obama team to promote Fayyadism, which is a big idea but faces a huge structural challenge. In 2006-2007, the Palestinian political system fractured between Hamas-controlled Gaza and a West Bank controlled by Fatah, led by Abbas and Fayyad. So, today, the Palestinian Parliament may not have the unity or legitimacy to endorse any agreement with Israel. Therefore, America must figure out how to bring about a West Bank Palestinian state next to Israel in this context. It will have to happen in phases, with the first phase being establishing a Palestinian state with “provisional borders” — covering roughly all of the West Bank minus the current Israeli settlement blocs — while postponing refugees, Jerusalem and final borders to the second phase.

President Obama was 100 percent right to call out Israel on its settlement expansion, which undermines the opportunities inherent in this moment. But he also needs his own clear strategy to exploit the opportunities inherent in this moment — and that has been lacking up to now from his foreign policy team. If we are going to fight with Israel — or better yet, work with it — let’s do so over a big U.S. strategy that we think can shape a more stable Middle East.